Blog > Blog > Archive by tag 'rents'

February 8, 2010 at 3:51 pm

One of the most important things every investor needs to do before purchasing a property is a profitability analysis. At first glance, many deals seem great, but upon further review turn out to be less than ideal. You just can’t tell for sure until you do the numbers. That’s where this spreadsheet might come in handy.

If you have Microsoft Excel (or OpenOffice), this financial spreadsheet will do the analysis for you.  I find particularly useful when scrutinizing deals as you can quickly determine if a property is worth further research by simply plugging in a  few numbers. Simply enter the rents, expenses and financing and it figures out how profitable the investment will be. Of course, this is a very simplified spreadsheet. It does not account for major repairs, appreciation or tax benefits. However, it should give you a realistic snapshot of an investments potential.

I like to pay particular attention to both cash-on-cash return, which consider real-world financing scenarios, and the always popular cap rate.  The percentage cash-on-cash return tells you how much money you will get back in a given year for the money you put it, while the cap rate is the yearly return assuming the property was purchased with cash.

You can download this spreadsheet for yourself by clicking on this link: Rental Property Analysis. Hope it comes in handy.  If you have any questions or comments of the spreadsheet, please contact me.

June 11, 2008 at 4:07 pm

Technology is a glorious thing. Zilpy, not to be confused with Zillow (which I have always found unreliable), is a new website that tracks rental rates and statistics across the country. It just might be the answer to the age old question of how much to ask for rent on a unit. They pull these statistics from all over the internet from sites such as backpage.com and apartmentfinder.com and use them to populate a surprisingly versatile site. Read more

May 14, 2008 at 2:41 pm

When many investors are looking for their next rental property they have a tendency to ignore a vast majority of the current inventory on the market. The trait that these properties share in common is that they are single bedroom units. Landlords tend to shy away from them for fear that they won’t be able to pull in the rents they desire. If you can relate to this standpoint, just as with avoiding duplexes, you could really be missing out on some great buys. Read more

April 11, 2008 at 5:15 pm

sales fall rents riseDespite the gloom and doom touted by the media, right now is a great time to be a landlord or real estate investor. You’re going to have a tough time if you’re trying to sell, but the current buyers market is opening up some real deals. But this fact is by no means a secret. What seems to be less recognized is how much our local rental market is improving in response to these current market changes. Read more

March 20, 2008 at 12:06 am

raise rentAccording to forecasts.org, as of today, the rate of inflation in the United States is 4.12%. That’s really high! Whether you live in St. Louis, the East Coast or Juneau Alaska this affects everything from the cost of a gallon of gas to your taxes. Money is worth less so it takes more of it to buy any product. Read more

February 29, 2008 at 12:32 am

Trash is never-relenting enemy in urban areas. Your tenants can be the cleanest on the block, yet trash will find a way into your yard. Those “free” newspapers that seem to appear out of nowhere on your front porch are a particular pet peeve of mine. Regardless of where it comes from, it needs to be taken care of. You’d think people would realize that by now, but I find myself constantly astounded at how many rental property yards are just covered with junk. I don’t know if its dirty tenants or lazy landlords that are to blame, but its a problem that can be found throughout the St. Louis area.

Trash in the yard of your properties or in the basements or on the porch is unsightly and draws household pests. When prospective tenants take a look at your vacancy and see trash all over the place, you’ve just made a bad impression. The same goes for prospective buyers if the property is for sale. Its also bad for tenant retention and tends to get you on the City’s bad side.

This is a never-ending battle, fighting the pileup of this trash, and you need to keep on top of it. When you visit your property to collect rent or fix a sink, you need to pick up the trash. When you cut the lawn, you need to pick up the trash. Even if you have to make a special visit to do it every couple weeks you need to pick up the trash.

Landlords who have their properties professionally managed seem to have the biggest problem with this. For some reason, it seems like all the property managers in town seem to think that keeping their clients properties clean isn’t their responsibility. If you have a manager in place, check up on how they are doing with this issue. If you stop by and the place is filthy, call them out on it. You’re paying for their service, and if they can’t provide something as basic as picking up the trash, you might want to look elsewhere.

Whether you’re doing it yourself or have someone else do it for you, picking up regularly around your properties should be of major importance to you in maximizing th profitability of your investments. Dirty buildings draw bad tenants and we all know how that can turn out.

January 30, 2008 at 10:52 pm

Shotgun-style units are a dime a dozen in South St. Louis. I don’t understand how anyone ever thought they were functional, regardless of the era they were built. I guess we take privacy for granted these days.

The question is what to do with these units today. You can rent them, for sure, but not having a private bedroom can be a major drag on your rent potnential. Seeing as this business is all about profits, that’s an important concern. One solution that a surprising amount of owners seem to gloss over is reorienting the layout of the unit. And its not really that hard.

The best time to do this is if you need to replace your drainage stacks in the building. At that point its simply a matter of moving the stack from the far end of the building to the middle. You’ll have to rework the plumbing and move the kitchen cabinets, but its not too big an ordeal. The costs are minimal and when you’re done you’ll have a private bedroom, which will bring increased rents and up the value of your property.

If you have shotgun units in your buildings, the next time you plan on replacing the stacks, make sure you take advantage of this great opportunity.

January 18, 2008 at 7:57 pm

Getting unwanted tenants out of your apartment units can be one of the most frustrating experiences a landlord can go through. Whether you want to give them the boot to rehab the unit or want them out because they aren’t paying their rent, its not a fun experience. The most common method used to do the job is the eviction. An effective method, for sure, but an expensive one. Legal fees, rent loss and value-of-time costs tend to rack up in a hurry.

The next time you need to move out a tenant, consider an alternative: cash-for-keys. This method, commonly used by banks in foreclosure situations, can be very fast and relatively cheap. The basic premise is that rather than going the route of eviction, you offer a cash settlement to the tenant if they are out of the unit by a specified time. Of course, the actual amount of the settlement depends on the situation. At first glance, many landlords scoff at the idea, for many reasons. Such an attitude is, however, rather shortsighted. Consider the following:

  • It’s fast – This method can potential get the tenant to move out in a matter days due to the financial incentive. Compare that to the three months a knowledgeable tenant can stretch an eviction out.
  • It’s cheap – Offering a tenant $250 to move out is far cheaper than any eviction. Paying a professional to handle the process will run you $300 alone. If you account for lost rent and tenant damage accrued during the eviction process, the choice is obvious. Even if you have to offer more than $250 to get the tenant to move.
  • It’s easy – Going through the process of eviction not only takes time and money, its a pain in the butt. Especially if you are representing yourself in the eviction. It’s also easier on the tenant. Many tenants would be willing to cooperate with you and move out, but they don’t have the money to make a down payment or move to a new place.

When you come down to it, there is no reason not to try this method. It’s cheaper, it’s faster and it’s quite simply a better arrangement for both you and your tenants. It doesn’t always work and it isn’t for ever situation, but its always worth a try.

December 4, 2007 at 8:50 pm

One of the most frustrating things I come across in the rental business is poorly managed apartments. I’m not talking about bad property management companies (that’s a whole other story), but bad landlords. The biggest issue is that everyone seems to want to have their cake and eat it too. Too many landlords seem to be under the impression that they can put a run-down, dirty rental unit on the market and get paid a premium rent. Time for a reality check.

The rental market is very strong right now. Units over $600 a month have seen a particularly big jump in interest lately, but people expect a quality product when they start spending that much money for an apartment. Outdated kitchens and bathrooms, broken radiators, window ACs, landlord white walls and stick-down tile do not a quality unit make. If your property is located in an area that can handle high quality units, you’ll need to bring your units up to that level of finish if you expect to rent them out. You can’t lose track of the fact that you are competing with other landlords for tenants. If a prospective tenant can get a better unit two blocks away for the same price, why would they rent yours? Get familiar with your local apartment market through the newspaper or internet ad sites such as craigslist or backpage (you can find links in the menu to the right) to avoid this problem. Educate yourself so you don’t waste your time overpricing or under improving your units.

So what’s the moral of this story? If you want to attract quality tenants at a premium rental rate so as to maximize your profit potential, you need to pay the price for it. Otherwise, you can’t blame anyone but yourself if your buildings sit vacant.

November 15, 2007 at 9:35 pm

*NOTE – This article was originally written in May of 2007 for the newsletter.

Working with investment real estate offers me an opportunity to talk shop with all kinds of landlords and view all types of apartments, across St. Louis. One thing that always astounds me, is the lack of quality rental units in town. There seems to be a perception that there is no market for quality apartments. In my experience, that simply isn’t true. Putting those careful touches on your units can go a long way.

As an example, I’d like to use a couple of 4-families I own together with my own family in the Shaw Neighborhood. All the units in these buildings were totally rehabbed in the early 90’s. When we bought them last year, the floors had been upgraded to hardwood and some of the kitchens had been redone. At the time, all the occupied units were filled with Section 8 tenants paying rents from $650 to $685. All in all, the buildings were in pretty good shape.

Many landlords would have just left things as they were and continued to run the building in its purchased state. However, we decided that we wanted to run these buildings at their full potential. Nine months later we are feeling the effects of this decision. Even though we have lost many a weekend due to our labors at the property, we couldn’t be happier with the results.

We haven’t had to do anything major in any of our units, but each time we have a new vacancy it takes weeks to get these properties running at our quality level. Those nicks in the walls and paint splatters take time to fix. That horrible, uncaulked, quarter-round trim takes time to replace. Broken closet door hardware has also been a consistent problem. A kitchen has needed to be redone here and there.

The key is treating quality units as if they are going to be sold as condos. The little things that many landlords skip over for sake of time have to be addressed. You also need to get creative with the painting. White, beige and light yellow don’t make for the most attractive setting. In our latest unit, we took this concept to a new level. Bright green, orange, and multiple shades of blue were the colors of choice. The paint costs the same as the more traditional colors, but the effect on the appeal of the unit can’t be easily measured.

This extra effort has made it much easier to find new tenants and push rents. There has been so much interest that we are already pre-leasing units, which will not be ready for almost two months. Our initial rental efforts were going for $725 per unit. The most recently completed units are reaching as high as $760 a month in rent. This high level of interest not only puts more money in our pockets, it also allows us to be more choosy of the tenants we allow into the building.

Of the eight units in these two 4-families, we still have three more to bring to our level of finish. Additionally, we are also finally getting the chance to address some the exterior issues that were untouchable during the winter. When we’re finished, we’ll have a couple of buildings that will require little to no attention to keep up, and eventually fetch a hefty price at resale. Taking that extra time to make sure you dot every “I” and cross every “t” can pay off. The next time you have a vacancy, don’t just patch and re-rent, bring it up to the level it should be.

November 15, 2007 at 5:24 pm

*NOTE – This article was originally written in December of 2006 for the newsletter.

Getting your tenants to pay their rent can be a tough enterprise. Especially when you aren’t the only person trying to collect rent at the building. As crazy as it sounds, this has actually been happening in the St. Louis rental market.

Apparently, a man has been coming to apartment units in the late evening at the very beginning of the month claiming to have just purchased the property. At this point he asks for the month’s rental payment. Most tenants seem to realize the oddity of the situation, but some have been taken through the scam.

Whether urban myth or fact, to protect yourself and your tenants, it would be prudent to contact all parties involved with your properties and warn them of this scam. Explain to your tenants both verbally and in writing, that rental payments are to made in the same fashion each month unless you, the landlord, personally notify them of a change.

This small investment of time could save you from major headaches down the road.

November 14, 2007 at 10:15 pm

*NOTE – This article was originally written in October of 2006 for the newsletter.

You’ve been trying to lease that apartment for weeks. You finally have an appointment for a showing. The prospect tenant shows up and says how much they love the apartment. Weeks later the apartment still hasn’t been rented and you are still losing money. What went wrong? Was the unit not right for the prospect? Maybe, but it might also have been you.

One of the hardest parts of being a landlord is getting tenants for your units. Even the highest quality units can sit vacant if they aren’t shown properly. The greatest marketing strategy in town can be wasted if you don’t close the deal. Here are a few tips on how you can make the most of your showings:

  • Remember that you are selling the apartment. The apartment will not sell itself. When the tenant arrives, you shouldn’t simply open the door and let them walk around. You should walk with them, pointing out the great features of the apartment.
  • When the prospect leaves, make sure they walk away with a rental application and a flyer displaying all the information they need to know about the apartment. Once they walk out the apartment door, they have already begun to forget some of the details of the apartment. The flyer will serve as a refresher and make the apartment stand out from the others they might have visited.
  • When giving the tenant a rental application or talking about the application, avoid calling it a credit or background check. These terms tend to scare away even quality tenants. Simply call the form a rental application. If they ask what that encompasses, let them know that you screen all tenants to help ensure the safety of all your tenants. That tends to be reassuring.
  • Follow the “smells good, looks good, feels good” rule. Try to get to your showings before the tenant arrives. If the unit has an odd or stale smell, put an air freshener in the unit. If the apartment is too hot or cold, turn on the AC or furnace. Turn on the lights beforehand. Make sure everything is presentable.

Keeping to these rules will help you to make the most out of your showings. That’s an important thing. After all, each day the unit goes unrented is money out of your pocket.

November 14, 2007 at 10:06 pm

*NOTE – This article was originally written in October of 2006 for the newsletter.

One of the most awkward situations a landlord can face is informing a tenant that they will not be renewing their lease. Whether the tenant has been in the apartment for one year or ten, it can be a delicate matter. Proper management of the situation will help to avoid lack of rental payment and property damage. Following these tips will help to make the situation easier.:

  • Send the tenant a letter explaining that their lease expires soon. Sending out such a letter 45 to 60 days prior to lease expiration will generally lead to the most satisfying results.
  • If the tenant was a good one, offer to provide them with a letter of reference for procuring a new residence. Many tenants feel a bit insulted by not being allowed to renew their lease. This action can help to lessen this feeling.
  • Avoid threats and insults during the process. Even if the tenant vacates on time, these will increase the chances that the tenant will intentionally do damage to the unit or not pay their last month’s rent.
  • If the tenant directly asks why they are not being allowed to renew, one response that is generally well accepted is to say that the apartment needs improvement, which can only be addressed if it is vacated.

If you follow these tips, your chances of a smooth transition will be much higher.
Use them wisely.

November 14, 2007 at 8:50 pm

*NOTE – This article was originally written in September of 2006 for the newsletter.

One of the biggest pitfalls in being a landlord is becoming complacent. When a landlord becomes content with the money they are making, their property management often begins to suffer. If a landlord does this they are not only throwing away profits today, they are throwing away the profits they could have made tomorrow.

Generally speaking, rents should be raised every year. Annual increases will vary, but 3% is a good average. The cost of living goes up every year and so should rents. Keeping in touch with what rents are going for near a property is crucial. Rents should keep pace or even exceed the average rents in an area. These higher rents will provide additional income and money for upkeep and repairs

Additionally there is another pitfall landlords must avoid. Despite what some landowners seem to think, spending money on repairs and improvements is not a waste. These repairs and improvements help to justify premium rents. Higher rents increase the value of the property. Not only that, but when a property is in better condition it is worth more. Even if the property will not be sold anytime soon, this increased equity position will enhance the ability to refinance as a means to pay for improvements, buy more properties or improve the mortgage structure.

November 14, 2007 at 8:22 pm

*NOTE – This article was originally written in August of 2006 for the newsletter.

Assuming there is no long-term lease, rents can be raised at any time. If the existing tenants are of poor quality, you might consider raising the rents in one step. However, if you have quality tenants that you wish to retain, the situation is generally more delicate.

One method you can employ is to gradually increase the rent. The shock of a $200 a month jump in rent will scare off many tenants. However, if you enforce this increase gradually over six months or a year, you may be able to ease the process of transition. Financial incentives can also be effective. A discounted rent for a month or gift certificate can help to ease the transition in pricing.

Whether you are raising the rent gradually or all at one time, one key to retaining tenants is honesty. If you simply post a notice on the tenants door saying that you will be raising their rent significantly, their likely response will be one of annoyance. Do them the courtesy of explaining why you are raising their rent, whether verbally or in writing. A personal call or visit is more likely to achieve the desired affect than an impersonal written notice.

Another good way to raise the rents with high tenant retention is to make improvements to the property. Your tenants will view a raise in rent more favorably if they witness a tangible reason for it. You should also be proactive in performing maintenance when managing your property. Tenants often remember getting good service, but they never forget poor service.

Make sure to be careful not to scare off too many tenants at once. Raise the rent of your units one at a time to avoid having too many vacancies. Regardless of which of the following methods you utilize, you should be prepared to lose some of your tenants when raising rents.

There is no single “right” or “wrong” way to raise rents. Utilizing any of the previously mentioned methods can prove to be effective. Just remember that owning rental properties is a business. Just like any business, if the customer is not satisfied they have plenty of other places to shop.